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DEPOSITORY SYSTEM IN
INDIA
PRESENTED BY
T.NAVIN(10M027)SAIPRASHANTI(10M090)
RITIKA (10M076)
R.SANTOSH (10M086)
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This system came in to force with effectfrom September 20, 1995.
DEPOSITORY SYSTEM
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What Is Scrip Based System? Scrip based system of securities transactions
involves enormous paper work involvingcertificates and transfer deeds.
Simply, securities are held in physical form.
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Feature of scrip based system:
1. There is physical movement of securitiescertificates along with transfer deeds.
2. Registration with the company.
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Problems with scrip based
system:
1. Time consuming (processing time by co.)
2. Bad deliveries due to signature difference
3. Mistakes in completion of transfer deeds
4. Tearing and mutilation of certificates5. Fake certificates
6. Cost of transfer : stamp duty
7. Postal delays and charges etc.
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What is depository system A system in which securities of an investor are
held by depository on behalf, and at the request,of an investor in an Electronic Form.
This system is also know as Scrip Less Tradingsystem.
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Features of Depository system
In the depository system, securities are held indepository accounts, which is more or less similar toholding funds in bank accounts.
Transfer of ownership of securities is done throughsimple account transfers.
This method does away with all the risks and hassles
normally associated with paperwork. Consequently, the cost of transacting in a depository
environment is considerably lower as compared totransacting in certificates.
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Whole system of Depository
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Constituents of depository
system
There are basically four participant:
The Depository
The Depository Participant
The Issuing Company The Investor
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Who is depository?
Depository facilitates holding of securities in theelectronic form and enables securities
transactions to be processed by book entry by aDepository Participant (DP), who as an agent ofthe depository, offers depository services toinvestors
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Features of depository system in
India
1. In the depository system, the apex body is theDepository..
2. A depository can be compared with a bank3. Depository services through depository
participants.
4. Fungibility5. Registered Owner/ Beneficial Owner (two types
of owner)
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Who can be a depository:
Depository Act, 1996 provides that -
Depository means:
A company formed and registered under the companiesAct, 1956, and
Which has got a Certificate of Registration from theSEBI.
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Depositories in India
The depository model adopted in India provides for acompetitive multi-depository system. There can be
various entities providing depository services. Suchsystem is known as Multi-Depository System.
At present two Depositories are registered with SEBI.
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NATIONAL SECURITIES
DEPOSITORIES LIMITED
NSDL is the first and largest depository in India,
and established in August 1996 It has 267 depository Participants (as on 13.12.08)
Address:
Trade World, a Wing, 4th &5th Floors
Kamala Mills Compound
Lower Parel
Mumbai 400013 website: nsdl.co.in
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PROMOTERS OF NSDL
1. Industrial Development Bank of India Limited(IDBI)
2. Unit Trust of India(UTI)
3. National Stock Exchange of India Limited(NSE)
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SHAREHOLDERS OF NSDL
State Bank of India
Oriental Bank of Commerce
Citibank
Standard Chartered Bank
HDFC Bank Limited
The Hongkong and Shanghai Banking CorporationLimited
Deutsche Bank
Dena Bank
Canara Bank
Union Bank of India
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CENTRAL DEPOSITORYSERVICES (INDIA) LIMITED
This is the second depository in India.
This was formed and registered in 1999.
It has 455 DPs as on 4.08.08 Address:
Phiroz Jeejeebhoy Towers
16th Floor, Dalal Street
Mumbai website: www.cdslindia.com
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PROMOTERS OF CDSL
Bombay Stock Exchange Limited
Bank of India,
Bank of Baroda, State Bank of India and
HDFC Bank
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SHAREHOLDERS OF CDSL
Standard Chartered Bank
Centurion Bank of Punjab Ltd
Canara Bank Union Bank of India
Bank of Maharashtra
Jammu and Kashmir Bank Limited
The Calcutta Stock Exchange AssociationLimited
Others
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A Bank-Depository Analogy
Bank Depository1.Holds funds in an account
on behalf of a customer
1.Holds securities in an
account on behalf of an
investor.2.Transfer funds between
accounts on the instruction
of the account holder.
2.Transfer securities between
accounts on the instruction
of the account holder.
3.Physical handling of funds
is avoided.
3.Physical handling of
securities is avoided.
4.Provides safe custody of
fund
4.Provides safe custody of
securities.
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Who Is Depository Participant:
A Depository Participant (DP) is an agent of thedepository through which it interfaces with an investor.
A DP can offer depository services only after it getsproper registration from SEBI.
A DP is just like a Branch of a Bank.
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Who can be Depository
Participant?
In terms of the Depositories Act, 1996, SEBI(Depositories & Participants) Regulations,1996, only thefollowing entities are eligible to become a Depository
Participant: Financial Institutions,
Banks, including approved foreign bank
Custodians,
Stockbrokers, A clearing corporation or a clearing house of a stock exchange
A non-banking finance company,
A registrar to an issue or share transfer agent
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Types of ownership
REGISTERED
OWNER
BENEFICIAL
OWNER
In the depository system, the ownership of securitiesdematerialized is bifurcated in to:
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Who is registered owner
The registered owner is that person whosename is registered in the register of membersof the company (issuer)
For the securities dematerialized,NSDL/CDSL is the Registered Owner in thebooks of the issuer.
But Registered Owner does not enjoy any
right and liability attached with the security.
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Who is the Beneficial owner Beneficial owner is that person who enjoys all
rights, duties, and liabilities attached with thesecurity.
It means voting right, dividend right, bonus share
right , right share right etc are all exercised by theBeneficial owner.
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Benefits of depository system/holding
securities in dematerialized form
Depository system provides benefits to:
The investors, and
The issuers.
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Benefits to investors:
1. The transactions in electronic mode eliminated the risk andproblems of delays.
2. The risk of bad deliveries is totally eliminated
3. There is no requisite of filling up the transfer deeds, payment of transfer stamp duty and a lot of other paper work at the end of the investor.
4. It totally eliminates the risk associated with fraudulent
interception of certificates in postages or transits..5. Transfer of ownership of securities is immediate in case of
depository mode.
6. The investment, automatically, becomes more liquid.
contd.
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Contd.
7. The problem of odd lot is also eliminated, as thedepository mode does not have any concept of market lot.
8. Holding investments in equity and debt in a singleaccount.
9. Change in address recorded with DP gets registered withall companies in which investor holds securitieselectronically eliminating the need to correspond with each
of them separately.
10. Transmission of securities is done by DP eliminatingcorrespondence with companies.
11. Nomination facility.
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Benefits to the issuing company:
1. The company saves a lot of paper work whichotherwise is required in the physical mode.
2. The company saves a postal cost for the dispatchof right shares, bonus shares or share certificatesafter affecting the transfer.
3. By offering depository services to its
shareholders, a company may send a positivesign to its shareholders about its concern for theirwelfare.
4. Depository services adds liquidity to the security
thus fund raising capacity of the company.
H i f D i
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How can services of Depositoryavailed by an investor?
ACCOUNT OPENING:
1. In order to avail of depository facilities, an investor has to open
a beneficiary account with a depository participant of hischoice.This is similar to opening a bank account to use the
banking services.
Just as one can hold funds in a bank account and transfer fundsacross accounts without actually handling cash;one can hold
securities in a depository account and transfer securities across
depository accounts without actually handling share certificates.
contd.
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Contd.
The account holder is called 'beneficial owner' in adepository system and the account is known as'beneficiary account'.
P d f O i A
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Procedure of Opening An
Account:
Investor will choose a DP for the purposes ofopening beneficiary account. The choice of theinvestor may be based on convenience, comfort,services offered, cost or any other reason.
The investor will obtain the relevant account
opening form from the chosen DP.
contd.
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Contd.
For the purpose of verification, investor has tosubmit the following documents along with theprescribed account opening form.
1. Proof of Identity(POI) (voter card, pan card, drivinglicense etc.)
2. Proof of Address (POA) (ration card, ank passbook copy voter id card etc.)
3. Passport-size photograph
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Contd.
Copy of PAN card
The DP will also provide a copy of the DP-Client
agreement.
WHY DEMAT ACCOUNT WITH
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WHY DEMAT ACCOUNT WITH
CDSL
1) ConvenienceA) Wide DP Network
B) On-line DP Services
C) Wide Spectrum of Securities Available forDemat
D) Competitive Fees Structure
E) Internet Access
WHY A DEMAT ACCOUNT
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WHY A DEMAT ACCOUNTWITH CDSL
2) DependabilityA) On-line Information to Users
B) Convenient to DPs
C) Contingency Arrangements
D) Meeting User's Requirements
E) Audit and Inspection
F) Dormant Account Monitoring
G) Helpdesk
WHY A DEMAT ACCOUNT
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WHY A DEMAT ACCOUNTWITH CDSL
3) SecurityA) Computer Systems
B) Unique BO Account Number
C) Data SecurityD) Claims on DP
E) Insurance Cover